Family Trust Set Up

Also commonly referred to as a “Discretionary Trust” a Family Trust formalises an arrangement where a Trustee is permitted to hold assets for a Beneficiary (or Beneficiaries) and to distribute income and capital between the Beneficiaries as and when the Trustee exercising discretion decides. The trust deed includes a wide pool of general Beneficiaries with lineal and lateral relations to the nominated Beneficiaries.

The person who sets up the Trust is called the Settlor. He or she is the person who contributes the original property or amount of money (called the settled sum) to enable the Trust to commence (see question “What is the amount of a settled sum?”).

The Trustee can be an individual or a company and is appointed by the Appointor when the Trust is first established. If the Trustee is an individual the Trustee should be a person in whom the Appointor and the Beneficiaries have total confidence. Commonly (and this is the Patricia Holdings recommendation) the Trustee is a company. If the Trustee is a company then the directors of the company should be individuals in whom the Beneficiaries have total confidence. There is a legal separation between individuals in their capacity as Directors of the company and their capacity as Beneficiaries of a Trust. It is very common for the Directors of the Trustee Company to be the same individuals as the Nominated Beneficiaries so in effect the Nominated Beneficiaries have effective control and management of the Trust.

The Beneficiaries or Beneficiary are the persons or person for whom the Trust is established. There are commonly two levels/types of Beneficiaries.

Nominated Beneficiaries are named and are intended to be the primary Beneficiaries of the trust. A Patricia Holdings deed allows for a broad pool of General Beneficiaries associated with the Nominated Beneficiaries to give the Trustee maximum flexibility. Our Trust deed allows for the following to be deemed General Beneficiaries:

Relations of the Nominated Beneficiaries which includes the parents, brothers, sisters, spouses, widows, widowers, children, children’s children, adopted children, and any lineal or lateral relation of the “Nominated Beneficiaries”, the spouses, widows, widowers, children and grandchildren of such brothers, sisters, spouses, children and descendants and next of kin. These include any person filling any of the above categories by reason of lineage, adoption or bona fide domestic relationship, including a bona fide relationship between persons of the same gender.” “Related Corporations and Trusts”, “Directors of Related Corporations”, “Shareholders of Related  Corporations”, “Legal Personal Representative” of a General Beneficiary, and “Charities and Institutions”

The Trust deed also provides for Additional General Beneficiaries. These are Beneficiaries (persons or companies) who are not related to the Nominated Beneficiaries, so are not included in the pool of General Beneficiaries (as defined above). Persons or companies related to Additional General Beneficiaries are not included in the pool of General Beneficiaries.

Should you wish to order a “Bloodline Trust”, please contact our team on 02 9953 2399 or via This email address is being protected from spambots. You need JavaScript enabled to view it..

The existing Trustee may resign or be removed. If by resignation it can be verbal or in writing (in writing is preferable).

If there is more than one Trustee, the notice, whether verbal or in writing, is given to the other Trustee or Trustees if there is more than one Trustee. If there is only one Trustee then the notice is given to the Nominated Beneficiaries.

A Trustee can be removed by the Appointor. Depending upon the wording of the Deed, either the retiring Trustee appoints a new Trustee or the Appointor appoints a new Trustee. The appointment should be in writing, preferably by Deed and should be signed by the new Trustee and incorporate an undertaking by the new Trustee to act as Trustee and discharge the duties of a Trustee set out in the Deed and at law.

Most Family Trust deeds provide that it is the Appointor that has the power to remove an existing Trustee and appoint a new Trustee.

The Patricia Holdings Family Trust deeds provide that the Appointor is the person who may remove a Trustee and appoint a new Trustee except in the following cases:

• if there is no Appointor then a Trustee (either the retiring Trustee or a continuing Trustee) has the power to appoint a new Trustee 
• if the Trustee has died then the deceased Trustee's Executor (Legal Personal Representative) has the power to appoint
• if the Trustee or Legal Personal Representative fail or refuse to appoint then the Nominated Beneficiaries can appoint.

In the current Patricia Holdings Family Trust deed, it is either the Trustee or the Appointor who has the authority to add a new Trustee. The appointment can be verbal or in writing (in writing is preferable). Generally the appointment is in the form of a Deed. The new Trustee must, when accepting the appointment, undertake to carry out the duties of Trustee and discharge the obligations contained in the Trust deed and at law.

This depends entirely upon the wording of the Trust deed. Most Trust deeds provide that there are two ways of removing a Beneficiary:

1. the Beneficiary by document in writing renounces his or her interest as a Beneficiary (a Renunciation may be mandatory if the change is made in conjunction with a Centrelink Declaration); or
2. the Trustee makes a declaration that henceforth a particular Beneficiary will no longer be a Beneficiary. The Trustee should carefully study the Deed to make sure that the Trustee has that power. The Patricia Holdings Deed does give the Trustee the power to remove a Beneficiary. The Trustee should be very careful when removing a Beneficiary not to create a re-settlement.

Any amount however small can be the settled sum. It can be as low as $1.00, commonly it is $10.00 or $100.00. It is a good idea to make the settled sum sufficiently large so as not to be completely absorbed by Bank Fees. What a Trustee must be ever vigilant for is to ensure that the settled sum is properly receipted into the funds of the Trust and accounted for throughout the life of the Trust. This is because if the settled sum is never paid to the Trustee as the seed capital of the Trust then the Trust never comes into existence.

The Additional General Beneficiaries are Beneficiaries who don’t fall within any of the categories as defined by “General Beneficiaries”. These could be a neighbour or a close friend.

Our order form invites you to nominate “Additional General Beneficiaries” if you choose. Individuals or entities named as Additional General Beneficiaries are Beneficiaries of the trust but do not benefit from the lineal or lateral provisions that the Nominated Beneficiaries enjoy. I.e. the Trustee has no discretion to distribute income or capital to related individuals or entities related to the “Additional General Beneficiaries”.

A Charity can be an Additional General Beneficiary.

Since 2015, the various State Revenue Offices (SROs) have been introducing potential surcharges on trusts that do not exclude foreign persons (or “absentees”) as beneficiaries, or, have foreign persons acting as trustee and hold property in the trust. Generally speaking, ‘foreign person’ means a person (or entity) that does not ordinarily reside in Australia and can include:

• an individual
• a corporation
• a trustee of a trust
• a beneficiary of a trust
• a government
• a government investor
• a partner in a limited partnership.

Even if a foreign person has not been named as a beneficiary, due to the general pool of beneficiaries defined in the deed, a foreign person may in fact be eligible to receive distributions thus the trustees may be liable for surcharge payments even when they have not, nor do they intend to, distribute to foreign persons.

Patricia Holdings offer two versions of our Family (or Discretionary) Trust Deeds for whether you wish to allow or disallow foreign persons from benefiting from the trust. If your deed has already been prepared and does not currently exclude foreign persons, we can prepare an amendment for you irrevocably excluding foreign persons from benefiting. This amendment can be ordered here.

For an overview of the surcharges currently in place around the country, please download our fact sheet.

The Nominated Beneficiaries in the Patricia Holdings Family Trust are the person(s) named and described in the schedule.

The General Beneficiaries are:

(a) the “Nominated Beneficiary” or “Nominated Beneficiaries”, and

(b) the “Relations of the Nominated Beneficiaries”, and

(c) “Related Corporations and Trusts”, and

(d) “Directors of Related Corporations”, and

(e) “Shareholders of Related Corporations”, and

(f) the “Legal Personal Representative” of a General Beneficiary, and

(g) “Charities and Institutions”, and

(h) any additional persons (if any) that are named, described or defined in the Schedule as

The Additional General Beneficiaries are Beneficiaries who don’t fall within any of the categories as defined by “General Beneficiaries”. These could be a neighbour or a close friend.

Our order form invites you to nominate “Additional General Beneficiaries” if you choose. Individuals or entities named as Additional General Beneficiaries are Beneficiaries of the trust but do not benefit from the lineal or lateral provisions that the Nominated Beneficiaries enjoy. I.e. the Trustee has no discretion to distribute income or capital to related individuals or entities related to the “Additional General Beneficiaries”.

A Charity can be an Additional General Beneficiary.

Patricia Holdings can help change the name of your Trust. The Trustee elects to change the name of the Trust and then confirms that election in writing. A Trustee must ensure that if a Trust changes its name that every person who has business dealings with the Trust deed and every Nominated Beneficiary of the Trust is notified of the change of name. We can provide all the paperwork required for $187 delivered as a PDF or $220 for printed and express posted documents.

Yes, every Trust  must have a Trustee. This is because the law requires that for a Trust to exist there must firstly be some Trust property and secondly, it is the Trustee (or Trustees) who hold the Trust property on Trust for a Beneficiary or Beneficiaries (there must be a separation between the legal and equitable ownership). A Trust is not considered a legal entity.

A Trustee winds up a Trust by:

• making a Declaration (in writing) that the Trust is to vest (that is the Trust ends and the Trust assets be distributed to the Beneficiaries);
• collecting in all of the Trust assets and converting them into cash (unless the Trustee proposes to make an in specie distribution);
• all debts of the Trust must be paid and all tax must be paid;
• if the Trust is a Family Trust, the Trustee must exercise a discretion and determine who among all the Beneficiaries is to receive the Trust assets;
• the assets (or cash) are then distributed;
• notice is then given to the Taxation Department that the Trust has ceased to exist.

Generally speaking, no. There must be a difference between the legal person of the Trustee and the legal person of the Beneficiary to enable a Trust to exist. However it can validly be argued that in all Family Trusts, because there are General Beneficiaries as well as Nominated Beneficiaries, the answer is they can be. It is Patricia Holdings experience though that most Banks refuse to lend to a Trust where the Trustee is one and the same as the sole Nominated Beneficiary.

No, for two reasons:

1. Section 102 of the Income Tax Assessment Act 1936 provided that if the person who establishes a Trust (the Settlor) has the power to terminate a Trust (that is, is the same person as the Trustee and in some cases a Beneficiary) then the Trust will be deemed not to exist and the Settlor will be personally taxed on the whole of the Trust income.
2. If the Settlor is a Beneficiary then the Settlor will not have divested him/her self of the Trust assets and as a consequence no Trust relationship can exist.

Much like holding shares in a company, as a Trust is not a legal entity, it cannot be named as the beneficiary. Instead, it should be listed as the Trustee of the Beneficiary Trust "as Trustee for" the Trust.

Any individual, company, or incorporated association can be a Trustee provided that the person or directors are not bankrupt, minors, or disqualified persons.

Any address that will enable the Trustee and Beneficiary to be identified usually the registered office for a company or Trust and a residential address for an individual.

The Trustee must have an Australian address as they have Governance responsibility for the Trust and therefore need to be accessible to the Legal Jurisdiction under which they operate. The state or territory of Jurisdiction can be nominated, but should the Trust be subject to legal proceedings, this is only one of the factors that will be taken into account when determining the appropriate Jurisdiction for the action.

If the Trust has already been settled and the settled sum paid to the trustee, no. The sole function of a Settlor is to establish the Trust. Once established and the settled sum has been paid to the Trustee the Settlor has no further involvement with the Trust thus there is no point in changing the named Settlor.

Generally speaking, yes, however this is not advised.

The definition of Beneficiary in most Family Trust deeds is very broad so it may not ever be necessary to add a Beneficiary. It is also worth noting that if a Beneficiary that could not be contemplated under the wide definition is added, then the addition can create a resettlement which can result in Capital Gains Tax and Stamp Duty being required to be paid for a second time. We suggest you seek independent legal advice before looking to add beneficiaries to an already settled trust.

A Trust  must vest (be wound up and its assets distributed) within 80 years of being set up (except in South Australia where the Law relating to perpetuities does not apply). The Patricia Holdings Trust deed provides for the Trust to have a maximum life of 79 years. A Trust can be wound up at any time within the 79 years.

These are two totally different things – a trust is an arrangement between 2 or more parties. It is a set of responsibilities that are imposed on a nominated party (the trustee) to hold assets on behalf of another party. A company is a legal entity registered with ASIC, that exists separately from its owners (its shareholders). A company’s status as a separate legal entity gives it the same rights as a natural person, meaning it can be sued, is liable for debts and it can sue another entity.

A trust is an arrangement between two or more parties whereby one party (the trustee) holds the assets within the trust on behalf of another party (the beneficiaries). While a trust can operate a business, the trust itself should not be considered a business. The trust deed provides rules, powers and guidelines and would need to written in such a way that allows a business to trade through a trust. Generally speaking, a company will act as the trustee of the trust and there will be nominated beneficiaries (usually the business owner and a beneficiary company). The trustee will then register a business name which will become the name the business trades under. This type of business structure is generally preferred for business owners seeking tax minimisation.

A corporate trustee has several advantages over an individual trustee:

Immortality

A corporate trustee, being a separate legal entity, can exist indefinitely, whereas individual trustees will eventually die, may become incapacitated, or may want out for another reason.

Legal ownership of the trust assets

Assets in a trust are held in the name of the Trustee on behalf of the trust. If individuals act as the trustee of your trust and you later want to change the trustee, you will have to change the legal owner of your trust’s assets.  Conversely, you can simply change the shareholders and directors of a corporate trustee which will not change the legal owner of the trust’s assets.

Asset protection & limited liability

Individual trustees can be personally liable for any loans taken out or liabilities that the trust may incur. If a corporate trustee is used, liability will generally be limited to the assets of the trustee company itself.

A trust is not a legal entity in itself and cannot own property. Instead a trust describes a relationship between various parties whereby a trustee or trustees (the legal owner) hold trust property on behalf of beneficiaries (the beneficial owner(s)). In the context of a Family trust the trustee holds the trust property on behalf of the nominated and general beneficiaries.

This is generally considered bad practice.

Some arguments state that they can be, however the trustee MUST show that they have at least considered other beneficiaries (as defined in the pool of beneficiaries) other than themselves. If this is not able to be shown, then it can be argued that a trust arrangement does not actually exist. We always recommend having at least one other person be nominated trustee, appointor or beneficiary in the trust to avoid such situations. We also suggest seeking independent legal, financial or tax advice prior to placing your trust deed order with us as we cannot advise you on your own individual circumstance.